Employment Cost Index Shows Wage Pressures Are Emerging

Wage pressures are emerging, led by average hourly earnings in the monthly employment report and also including the employment cost index which rose 0.7 percent in the third quarter in what is the third strongest showing of the expansion. The year-on-year rate, up 1 tenth at 2.5 percent, is the second strongest showing.

Pressures are evenly split between compensation, which makes up the bulk of employer costs, and benefits at respective quarterly increases of 0.7 and 0.8 percent and year-on-year increases of 2.5 and 2.4 percent.

With the unemployment rate at 4.2 percent, there's not much slack, if any at all, left in the labor market which points to a possible flashpoint for wage inflation. Today's report is certain to be discussed at this week's FOMC meeting with wage inflation a possible topic for the FOMC statement.

Recent History Of This Indicator:
Second-quarter wage and benefit costs slowed to 0.5 percent but they didn't completely offset the first quarter's 0.8 percent surge. Expectations for the third quarter's employment cost index is an imposing 0.7 percent quarter-to-quarter gain. The low rate of unemployment, at only 4.2 percent, is a warning signal for rising employer costs.